DCF Studio

    TROW · NMS · Financial Services

    T. Rowe Price Group, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 125.49

    Market price

    USD 104.16

    Implied upside

    +20.5%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.

    Value Per Share

    Perpetuity growth
    USD 125.49+20.5%
    Exit multiple
    USD 122.27+17.4%
    Market price
    USD 104.16

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn3bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 7.6bnUSD 7.9bnUSD 8.2bnUSD 8.6bnUSD 8.9bn+4.1%
    EBITUSD 2.6bnUSD 2.7bnUSD 2.9bnUSD 3.0bnUSD 3.1bn+4.1%
    NOPATUSD 2.1bnUSD 2.2bnUSD 2.3bnUSD 2.4bnUSD 2.4bn+4.1%
    Add depreciation & amortisationUSD 624.1mUSD 649.6mUSD 676.1mUSD 703.6mUSD 732.3m+4.1%
    Less capital expenditureUSD -345.3mUSD -359.4mUSD -374.1mUSD -389.3mUSD -405.2m+4.1%
    Less increase in working capitalUSD 2.6mUSD 2.7mUSD 2.8mUSD 2.9mUSD 3.0m-4.1%
    Free cashflow to firmUSD 2.4bnUSD 2.5bnUSD 2.6bnUSD 2.7bnUSD 2.8bn+4.1%
    Discount factor0.94430.84220.75100.66980.5973-
    Present valueUSD 2.2bnUSD 2.1bnUSD 1.9bnUSD 1.8bnUSD 1.7bn-7.2%
    Present Value Of The ForecastUSD 9.7bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.322Reported 1.480, pulled toward 1.0 (Blume)
    Cost of equity12.27%Risk-free + beta x equity risk premium
    Cost of debt7.00%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationUSD 22.2bn98.0% of capital
    Total debtUSD 447.2m2.0% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC12.13%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 125.49

    61% of EV

    Forecast FCFF, final year
    USD 2.8bn
    Capex at depreciation, working capital in reinvestment
    USD 2.7bn
    Less reinvestment at g/ROIC (13.5% of NOPAT)
    USD -370.3m
    Capitalised
    USD 2.4bn
    ROIC (reported)
    18.5%
    Terminal value, undiscounted
    USD 25.2bn
    Terminal value, discounted
    USD 15.0bn
    Enterprise value
    USD 24.7bn
    Less net debt
    USD -2.9bn
    Equity value
    USD 27.6bn

    Exit at 6.3x EBITDA

    Value per shareUSD 122.27

    60% of EV

    Terminal value, undiscounted
    USD 24.0bn
    Terminal value, discounted
    USD 14.3bn
    Enterprise value
    USD 24.0bn
    Less net debt
    USD -2.9bn
    Equity value
    USD 26.9bn

    Spread between methods: 3%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    10.13%146.04149.11152.54156.43160.87
    11.13%132.95135.10137.46140.10143.05
    12.13%122.31123.83125.49127.31129.32
    13.13%113.49114.58115.75117.03118.41
    14.13%106.05106.83107.67108.56109.52

    Outlined: this model. Green text: above today's price of 104.16. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year4.1%-1.1%-5.2pp
    EBIT margin34.7%27.3%-7.4pp
    Discount rate12.1%14.6%+2.5pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.